SOYBEANS stole the spotlight as last Tuesday's market activity brought a collapse in the soybean and soybean meal markets.
Arlan Suderman, senior market analyst for Water Street Solutions, said increased rains in Argentina and trade chatter (which has yet to be confirmed) were both superficially to blame for the sharp price decline.
According to Suderman, it was rumored that China had switched as many as three cargoes of soybeans that it had previously purchased from the U.S. to South American origin; at press time, those cancellations had not been confirmed, although the trade was anxiously awaiting official word prior to last Friday's open.
While these two factors may have been partially to blame, Suderman pointed out that the larger reason for the collapse was soybean meal market activity driven by the dried distillers grains plus solubles (DDGS) markets.
"When we saw China start to reject containers of DDGS around Christmas time, it was overall a very small percentage of what they take from us, but it was enough to get processors very gun shy, and so they quit shipping," Suderman said.
According to Suderman, in contrast to shipping products like corn, exporters have a difficult time finding an alternative destination for rejected DDGS.
"We don't have as fluid a market for DDGS, so they had to work harder," he explained. "Many sellers who were shipping containerized DDGS (to China) just quit sending containers over because they didn't want to deal with that risk." This, he said, quickly backed up supplies here and caused the DDGS price to break hard.
This created a backup in DDGS movement, which then caused a price drop of approximately $50-60 per ton. Suderman said the price drop suddenly made DDGS attractive in domestic livestock rations.
"We saw an increase in DDGS demand at the expense of soybean meal, so the soybean meal market collapsed," he explained. "When you have a collapse in soybean meal, it's tough to hold the crush margins. That really was a factor in dragging soybeans lower."
As soybean meal prices dropped early last week, Suderman said there was a point where soybean meal seemed to find some value in the cash market, allowing the markets to recover and stabilize somewhat.
He also pointed out that as prices began to recover, weather conditions improved in South America, providing evidence that weather really was not a major factor in the price collapse earlier in the week.
Furthermore, Suderman did note that China appears to be trying to take most of the DDGS shipments, which will help prices.
China recently renewed safety certificates for imports of three genetically modified varieties of corn, according to Monsanto. However, the country's agricultural ministry has not given the green light to Agrisure Viptera (MIR 162), the variety responsible for China's rejection of around 600,000 tons of U.S. corn in the last few months. Previously approved varieties are subject to safety review and authorization renewal around every three years.
The recent rejections spurred the North American Export Grain Assn. and National Grain & Feed Assn. last week to ask Syngenta to immediately halt commercialization of two genetically modified seeds — MIR 162 and Duracade biotech-enhanced corn — until market approvals are granted in China and other export markets.
As for general market commentary, one of the things Suderman said he is watching in early 2014 is the Wall Street money pattern. In 2013, Suderman said there was a large shift in where Wall Street investors were spending their money, with huge gains in the equity markets at the expense of the commodity markets.
"When you have the equity markets have as strong a year as they did and the commodity markets have as poor of a year as they did, history has said that relationship tends to correct," he said.
This could happen through commodities seeing a strong rebound the following year or the equities coming down or some combination of the two. History also shows that when equities have strong gains, they could have additional gains the following year, but just not as strong as the previous year.
Wall Street has really been debating where the money should go this year, but Suderman said this has significant implications for whether there will be a general gain in commodity markets or the opposite case.
Last week, Suderman observed a slight change in the money flow, which may indicate that commodities will receive some support. He said feed users will need to pay attention to this in regards to locking in long-term coverage.
Market observers, particularly in the equity markets, often watch what is termed "the January effect," the theory that how the market performs in January will set the tone for the rest of the year. If the market closes out January higher, for example, the theory suggests that the market will finish the year higher; so, the final week of the month might play an important psychological role in setting the stage for how the money flows in 2014.
Corn markets remained uneventful as prices saw only a slight increase over the last week. Nearby prices settled at $4.24/bu. heading into the Martin Luther King Jr. holiday weekend. They remained steady throughout last week, with nearby prices up last Thursday.
Soybeans fought to hold chart support following last Tuesday's collapse. March futures fell 36 cents last Tuesday, with the lowest price at $12.80/bu. Nearby soybean prices settled at $12.77/bu. last Thursday.
According to Bryce Knorr, senior editor of Farm Futures, both rain in South America and the approaching Lunar New Year for China have slowed new buying.
As prices linger around the lowest numbers in several years, wheat prices were higher last week, with the emergence of new tenders in the market.
Another blast of cold temperatures hit the central and eastern Midwest and was expected to stick around for a couple of weeks. Soft red winter wheat fields without adequate snow cover are vulnerable to damage.
The U.S. Department of Agriculture's Economic Research Service (ERS) recently reported that a record crop in Canada, along with larger harvests in Australia and the major Black Sea exporters (Russia, Ukraine and Kazakhstan) are the main contributors to the outlook for increased global wheat output (Figure).
ERS said the world wheat trade is also forecasted to reach a record 154.3 million metric tons in 2013-14 as increased supplies in major wheat producing and exporting countries — including Canada, Australia and the Black Sea region — put downward pressure on wheat prices.
Additionally, U.S. wheat prices are also under pressure because falling U.S. corn prices after the rebound in the 2013-14 corn crop have led to reduced demand for feed wheat.
A source at USDA's National Agricultural Statistics Service (NASS) has confirmed that the oilseed crushing report may be returning.
Two years ago, the U.S. Census Bureau terminated the collection of data for the Current Industrial Report program after a comprehensive review of a number of programs concluded that it was necessary to terminate and reduce some existing programs in order to secure funding for new programs and manage cyclical increases for other data collection programs.
Providing that it receives funding and Office of Management & Budget (OMB) approval, the agency source said NASS is planning to conduct surveys of the following four industries and publish the corresponding reports:
* "Fats & Oils: Production, Consumption & Stocks" (industry: fat and oilseed animal and plant — fats and oils — stocks, renderers, consumers and processors).
* "Consumption on the Cotton System & Stocks" (industry: cotton — storage, weavers, shippers and processors).
* "Fats & Oils: Oilseed Crushings" (industry: ethanol producers [wet and dry mills]).
* "Flour Milling Products" (industry: flour mills or processors).
The source said NASS has been preparing to conduct the survey work and did solicit and receive comments via the Federal Register last year in favor of doing the work; OMB approval and funding are still needed to proceed.